Finish the Job on Financial Regulation

GFSRBy José Viñals

Brisbane and Basel may be 10,000 miles apart, but when it comes to financial regulation the two cities will be standing cheek by jowl.

At the next summit of the Group of Twenty advanced and emerging economies, to be held in Brisbane in November, political leaders will take the pulse of the global financial regulatory reform agenda, launched five years ago. The explicit goal of the Australian G-20 presidency is to finally complete these essential reforms. As Prime Minister Tony Abbott said today in Davos, “Financial regulation is always a work-in-progress, but these reforms now need to be finalized in ways that promote confidence without eliminating risk.”

I strongly support this extra push to create a safer financial system that can better support the needs of the real economy, and better protect taxpayers. For far too long, critics have been able to portray the G-20 reform agenda as a regulatory supertanker stuck in the shallow waters of technical complexity, financial industry pushback, and diverging national views. This image is increasingly off the mark.

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The Danger Zone: Financial Stability Risks Soar

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A Tale of Titans: The Too Important to Fail Conundrum

Folklore is riddled with tales of a lone actor undoing a titan: David and Goliath; Heracles and Atlas; Jack and the Beanstalk, to name a few. Financial institutions seen as too important to fail have become even larger and more complex since the global crisis. We need look no further than the example of investment bank Lehman Brothers to understand how one financial institution’s failure can threaten the global financial system and create devastating effects to economies around the world. We’ve been looking at how to fix the too important to fail problem, and favor market based measures to help reduce the likelihood and impact of a failure. Global regulators have come up with a new set of tighter rules for all banks, known as Basel III, as a starting point to make the system less risky and address a number of regulatory issues. Implementation may take several years, however, while systemic institutions continue to grow in size and complexity, and may resume their risky practices. So in the interim, we’d like to see rapid, credible, and visible actions.

Global Challenges, Global Solutions

The April 2011 IMF-World Bank Spring Meetings are upon us here in Washington DC. With global challenges that require global solutions—the theme of the meetings—IMF Managing Director Dominique Strauss-Kahn reminds us that this is “not the time for complacency.” Here’s a snapshot of what you need to know to get you through the meetings….

Macroprudential Policy—Filling the Black Hole

When the global financial system was thrown into crisis, many policymakers were shocked to discover a gaping hole in their policy toolkit. They have since made significant progress in developing macroprudential policy measures aimed at containing system-wide risks in the financial sector. Yet progress has been uneven. Greater efforts are needed to transform this policy patchwork into an effective crisis prevention toolkit. Given the enormous economic and human cost of the recent financial debacle, we cannot afford to miss this opportunity for substantial reform. We need further collective efforts to fill the policy black hole. It is our best chance of avoiding future crises.

iMFdirect–Must Reads on Global Finance and Budgets

The iMF Direct Blog has picked our list of must read posts covering the highs and lows of global finance and government budgets and spending.

Toto, we’re not in Kansas anymore: Exploring the Contours of the Financial System After the Tornado

Just as a tornado in Kansas transplanted Dorothy and, her dog, Toto from familiar comforts to the unknown land of Oz, the global crisis has led many to wonder what has become of the global financial system and, more importantly, what will it look like next. Is the wicked witch of the West—excessive risk taking and leverage—really dead? Now, as the storm subsides, there is time to speculate about what the future financial sector might look like. Here, Laura Kodres blogs about a new Staff Position Note she co-authored with Aditya Narain that attempts to discern the contours of this new financial landscape.

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